VietNamNet Bridge – The domestic monetary market has been stable this year despite global headwinds, with the State Bank of Viet Nam (SBV) trying to harmonise developments in interest and exchange rates, as well as the credit and foreign reserve situation. SBV Deputy Governor Nguyen Thi Hong talks to Vietnam News Agency reporter Thuy Ha about this.
The monetary market has been quite stable this year, with systematic liquidity and operational security assured. What has the SBV done to achieve this?
The SBV has been steadfast in operational goals, while implementing flexible policies that closely tracked developments.
When economic growth slowed in the first quarter of the year, the SBV carried out some measures to help ease difficulties for production and business activities, based on stabilised inflation. For example, it allowed credit institutions to continue to finance export projects with foreign currency loans until the end of the year. It also revised Circular No 36 [on restrictions that guarantee banking operation safety], adjusting norms related to property credits and the ratio of short-term capital used for medium to long-term lending in a manner that was more suitable.
The SBV regulated liquidity at reasonable levels to stabilise interest rates and support government bond issuances, at the same time ensuring stability in exchange rates and the foreign exchange market, and increasing the national foreign reserve.
Reducing interest rates and controlling inflation are conflicting goals. How has the SBV harmonised them?
Entering 2016, the SBV and many experts realised that there would be significant challenges for interest rate operation this year. However, the central bank carried out measures to ease interest rates to assist businesses.
In daily management, the SBV tried to prevent a rising trend in interest rates in some commercial banks during the first months of the year. It provided credit institutions with easier access to capital by setting relatively low interest rates in the inter-bank market, so that they did not have to increase deposit rates in transactions with individuals and businesses.
Also, as I mentioned, the SBV revised Circular No 36 adjusting norms for property loans and the use of short-term capital for medium to long-term credits. The SBV Governor also asked credit institutions to save operational costs and balance portfolios to curb interest rate hikes and stabilise the market.
With an interest rate for deposits in US dollars staying at zero per cent per year, declines in interest rates in Vietnamese dong deposits will create pressure on exchange rate operation. What do you think?
It is true that dong interest rate declining will cause depreciation of the domestic currency against foreign currencies. However, the SBV has changed the way it operated exchange rates this year, setting a reference rate every day instead of maintaining a fixed rate. This has significantly reduced foreign currency speculation, easing the pressure caused by low dong interest rates on exchange rate operation.
In fact, often interest rates in the inter-bank market were low and the liquidity of credit institutions was redundant. But exchange rates were quite stable. The recent British decision to leave the European Union caused a slight depreciation of the dong, and basically, exchange rates and the foreign exchange market have been stable.
How were exchange rates stabilised in the face of significant global headwinds?
Global economic developments remained complex and unpredictable during the first six months, impacting the domestic monetary market. However, the daily adjusted reference exchange rate helped stabilise exchange rates and the foreign exchange market.
Increasing the national foreign reserve is also difficult. What can be done?
An increase in the foreign reserve is vital as it decides whether the country is ready to intervene in the market to stablise the macro-economy and ensure monetary and financial security to serve goals in socio-economic development, as well as security and national defence.
The SBV, aiming at enhancing the position of the dong, will employ all operational measures and monetary policies that encourage people to hold the domestic currency. The new exchange rate operation mechanism helps reduce foreign currency speculations, thus enabling the central bank to buy more foreign currencies to supplement the foreign reserve. Buying foreign currencies means pumping dong into the economy, and the SBV will use suitable tools to regulate money in such a way that it can increase the foreign reserve.
How has the SBV operated credit policies to support economic growth in line with set targets?
Credit policy operation was among issues that the SBV focused on during the first six months. The central bank always aims at credit expansion for economic growth, while maintaining security and efficiency. It concentrated on driving capital into production areas, especially fields prioritised by the Government.
As of the end of June, credit grew by 8.16 per cent, slightly more than the same period last year – matching the annual target. Between now and the end of the year, the central bank will have measures to reach overall credit growth of 18-20 per cent in 2016.